Monthly Review Of DivGro: March 2021

Summary

• I review my portfolio of dividend growth stocks, DivGro, providing a summary of transactions and the impact of those transactions on projected annual dividend income.
• In March, I added shares to one existing position and reduced the size of two existing positions. I also opened a new position by investing in a growth stock that does not pay dividends.
• Four DivGro stocks announced dividend increases in March and I'm happy to report that DivGro set a new record for monthly dividend income of $4,459.

Welcome to the March review of DivGro, my portfolio of dividend growth stocks. I present details of any buys or sells, and I provide a summary of dividends collected. Additionally, I look at how the month's activities have impacted DivGro's projected annual dividend income (PADI).

In March, I added shares to one existing position and reduced my holdings in two positions. Additionally, I opened a new position in a growth stock that does not pay dividends. Four DivGro stocks announced dividend increases in March. The net result of these changes is that PADI decreased by about 1.4% in March. Year over year, PADI increased by 17.9%.

As for dividend income, in March I received dividends totaling $4,459 from 46 stocks in my portfolio, a year over year increase of 29%. This is a new record for monthly dividend income! So far in 2021, I've collected $8,887 in dividends, or about 26% of my 2021 goal of $34,500.

Source: Unless otherwise noted, all images and charts are from DivGro, the author's blog

Click to enlarge

DivGro's PADI of $34,702 means I can expect to receive $2,892 in dividend income per month, on average, in perpetuity. This assumes the status quo is maintained. But PADI should increase over time because I invest in dividend growth stocks. Furthermore, I plan to reinvest dividends until I retire, so DivGro's PADI should continue to grow through dividend growth and through compounding.

Dividend Income

I collected dividends totaling $4,459 from 46 different stocks in March, which is a new record for monthly income:

Here is a list of the dividends I received in March:

• Archer-Daniels-Midland Company (ADM) — income of $111.00
• Aflac Incorporated (AFL) — income of $33.00
• Amgen Inc (AMGN) — income of $88.00
• Anthem, Inc (ANTM) — income of $11.30
• Atmos Energy Corporation (ATO) — income of $62.50
• Broadcom Inc (AVGO) — income of $108.00
• BlackRock, Inc (BLK) — income of $144.55
• Cummins Inc (CMI) — income of $81.00
• Chevron Corporation (CVX) — income of $314.76
• Digital Realty Trust, Inc (DLR) — income of $52.20
• Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) — income of $142.50
• Gilead Sciences, Inc (GILD) — income of $142.00
• The Home Depot, Inc (HD) — income of $99.00
• Honeywell International Inc (HON) — income of $65.10
• International Business Machines Corporation (IBM) — income of $163.00
• Intercontinental Exchange, Inc (ICE) — income of $33.00
• Intel Corporation (INTC) — income of $104.25
• Johnson & Johnson (JNJ) — income of $101.00
• Lockheed Martin Corporation (LMT) — income of $78.00
• Main Street Capital (MAIN) — income of $92.26
• McDonald's Corporation (MCD) — income of $64.50
• 3M Company (MMM) — income of $148.00
• Microsoft Corporation (MSFT) — income of $56.00
• NextEra Energy, Inc (NEE) — income of $38.50
• AllianzGI Equity & Convertible Income Fund (NIE) — income of $380.00
• Northrop Grumman Corporation (NOC) — income of $29.00
• Realty Income Corporation (O) — income of $70.35
• Public Service Enterprise Group Incorporated (PEG) — income of $51.00
• PepsiCo, Inc (PEP) — income of $102.25
• Pfizer Inc (PFE) — income of $117.00
• Pinnacle West Capital Corporation (PNW) — income of $145.25
• Public Storage (PSA) — income of $90.00
• QUALCOMM Incorporated (QCOM) — income of $22.75
• Raytheon Technologies Corporation (RTX) — income of $57.00
• Starbucks Corporation (SBUX) — income of $63.00
• Snap-on Incorporated (SNA) — income of $73.80
• The TJX Companies, Inc (TJX) — income of $52.00
• T. Rowe Price Group, Inc (TROW) — income of $216.00
• The Travelers Companies, Inc (TRV) — income of $85.00
• UnitedHealth Group Incorporated (UNH) — income of $50.00
• Union Pacific Corporation (UNP) — income of $46.56
• United Parcel Service, Inc (UPS) — income of $102.00
• Cohen & Steers Infrastructure Fund, Inc (UTF) — income of $155.00
• Visa Inc (V) — income of $16.00
• Valero Energy Corporation (VLO) — income of $181.30
• Wells Fargo & Company (WFC) — income of $20.00

The following chart shows DivGro's monthly dividends plotted against PMDI. Quarter-ending months are huge outliers:

To smooth things out a bit, I create a rolling 12-month average of dividends received (the orange bars) plotted against a rolling 12-month average of PMDI (the blue, staggered line):

While it would be nicer if dividends were distributed more evenly, it is not something that would drive my investment decisions.

Dividend Changes

In March, the following stocks announced dividend increases:

• General Dynamics Corporation (GD) — increase of 8.18%
• 3M Company (MMM) — increase of 0.68%
• Realty Income Corporation (O) — increase of 0.21%
• Oracle Corporation (ORCL) — increase of 33.33%

These changes will increase DivGro's PADI by $98.

I like seeing dividend increases above 7%, so I'm happy to see that two of these increases top my expectations. The arithmetic average of this month's dividend increases is 10.6%, which easily beats inflation.

Transactions

One of my goals this year is to slowly transition my portfolio to one with about equal representation in each of the super sectors. This process will be slow and methodical and will probably take several years.

In October 2020, I determined DivGro's super sector distribution for the first time. At 48.1%, DivGro was heavily overweight in the Sensitive sectors, which include both the best-performing sector in 2020, Information Technology, and the worst-performing sector in 2020, Energy. In contrast, DivGro's representation was somewhat underweight in the Cyclical sectors at 29.1% and significantly underweight in the Defensive sectors at 22.8%.

Since October, I've somewhat improved DivGro's super sector distribution:

As mentioned, this balancing process will be slow and methodical.

Here is a summary of my buy transactions in March:

• Dropbox, Inc (DBX) — opened a new position of 100 shares

• Taiwan Semiconductor Manufacturing Company Limited (TSM) — added 100 shares and increased position to 200 shares

I opened a small position in DBX, a company that provides a platform to allow individuals, teams, and organizations to collaborate online for free or through a paid subscription plan for premium features. DBX was incorporated in 2007 and is headquartered in San Francisco, California.

At the time of its IPO in March 2018, Dropbox had annual sales of about $1.4 billion, but the company was still losing about $490 million per year. Over the past 12 months, Dropbox had sales of $1.9 billion and it earned $491 million in free cash flow!

Many stocks struggle after their IPO, going into what is termed a post-IPO slump. This slump could last months or even years, but it appears DBX may be exiting its slump. Since March 2020, DBX shares have made higher highs and higher lows and the stock price appears to be in the early stages of an uptrend.

While I'm mainly a DG investor, sometimes a compelling story sways me to speculate... and this is one of those times. So far, so good... DBX is up 8% since my buy!

TSM is a high-quality stock and one of DivGro's home run stocks. I doubled my TSM position because I'm short a deep-in-the-money covered call option and I'm anticipating an assignment soon. By doubling my shares, I'm preparing for that eventuality. Should the covered call option be assigned, I'll be able to deliver these shares and protect the long-term capital gains and lower cost basis of my original lot.

TSM has done well for me since I first opened my position in March 2018:

Source: Portfolio-Insight.com

During this period of ownership, the S&P 500 returned 54%, while TSM returned 209%. That's a significant outperformance!

Speaking of in-the-money covered calls, I had two assignments in March resulting in sell transactions:

• Cisco Systems, Inc (CSCO) — sold 200 shares and reduced position to 100 shares
• Philip Morris International Inc (PM) — sold 100 shares and reduced position to 20 shares

CSCO closed at $48.98 per share on options expiration day, about 8% above the $45 covered calls I'd sold. As a result, the two covered call options I'd sold were assigned and 200 of my CSCO shares were called away. In the process, I secured about $269 in options income for a trade that lasted about 3.5 months. While CSCO's yield was 3.02% at assignment, the annualized yield of this options trade was 9.22%! So, not a bad outcome, considering!

CSCO is a high-quality stock with a quality score of 24 (out of 25) based on DVK Quality Snapshots. At $52 per share, it is trading at about fair value. I'm looking to sell puts at a $45 strike price to see if I secure a lower entry point.

PM closed at $90.56 per share on 18 March, one day before the options expiration day. As it turns out, 18 March was also the day before PM's ex-dividend date. The option holder decided to exercise the $90 put option I'd sold, so my shares were called away, along with $120 in dividends I would have received as the owner. Too bad, but that's the risk I take for selling covered calls on dividend growth stocks.

I'm not too unhappy, though. I secured about $192 in options income for a trade that lasted about three months (or one quarter). That's 60% higher than PM's quarterly dividend! While PM yielded 5.37% at assignment, the options trade returned 8.48% on an annualized basis! Not bad!

PM has a quality score of 18, so it's a lower-quality stock than CSCO (according to DVK Quality Snapshots), but PM offers a higher yield of 5.45% at $88 per share. My fair value estimate is $97, so PM is discounted by about 9%. I'll see if selling a put at an $80 strike price would replace the dividend income I surrendered as a result of the assignment.

My March transactions decreased DivGro's PADI by about $597.

Markets

Here is a summary of various market indicators, showing the changes over the last month:

	DOW 30	S&P 500	NASDAQ Composite	10-YR BOND	CBOE VIX
Feb 28, 2021	30,932.37	3,811.15	13,192.35	1.46	27.95
Mar 31, 2021	32,898.00	3,967.50	13,089.75	1.746	19.40

Click to enlarge

In March, the DOW 30 gained 6.4%, the S&P 500 gained 4.1%, and the NASDAQ dropped 0.8%. The yield on the benchmark 10-year Treasury note rose to 1.76, while CBOE's measure of market volatility, the VIX decreased by 30.6% to 19.4.

Here's a chart showing how the stocks and funds in DivGro performed over the past month:

In March, DivGro outperformed the S&P 500.

Portfolio Statistics

Given DivGro's current market value and the total capital invested, the portfolio has returned about 89% since inception. But calculating the IRR (internal rate of return) gives a better measure of portfolio performance, as IRR takes into account the timing and size of deposits since inception. DivGro's IRR is 16.3%.

I track the yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC was unchanged from last month's 3.94%.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 19.1%, up from last month's 18.5%.

Finally, DivGro's projected annual yield is at 5.10%, down from last month's value of 5.19%. I calculate the projected annual yield by dividing PADI ($34,702) by the total amount invested.

The following chart shows DivGro's market value breakdown. Dividends are plotted at the base of the chart so we can see them grow over time:

Looking Ahead

I was fortunate to get the Johnson & Johnson Janssen COVID-19 Vaccine last week and I'm looking forward to the increased flexibility that my vaccination will afford after the fourteen-day period of building immunity is over. Of course, we have a long way to go before reaching herd immunity (both in the USA and worldwide), so it remains a race against time before the virus mutates into something potentially more contagious or deadly, or one that negates the current vaccines.

We've started planting some vegetables, and I'm looking forward to the warmer weather in April, May, and June. Beyond June, it sometimes gets too hot for my liking, so I really enjoy the weather this time of the year!

Please see my Performance page for various visuals summarizing DivGro's performance.

Thanks for reading and take care, everybody!

Analyst’s Disclosure: I am/we are long AAPL, ABBV, ACN, ADM, ADP, AFL, AMGN, AMZN, ANTM, APD, ATO, AVGO, BEN, BLK, BMY, BNS, CB, CMCSA, CMI, CNI, COST, CRM, CSCO, CVS, CVX, DBX, DIS, DLR, ETO, FDX, GD, GILD, GOOG, HD, HON, HRL, IBM, ICE, INTC, ITW, JNJ, JPM, KO, LMT, LOW, MA, MAIN, MCD, MDT, MMM, MO, MRK, MSFT, NEE, NFLX, NIE, NKE, NNN, NOC, O, ORCL, PEG, PEP, PFE, PG, PINS, PM, PNW, PSA, QCOM, RTX, RY, SBUX, SNA, SYK, T, TD, TJX, TROW, TRV, TSM, TXN, UNH, UNP, UPS, UTF, V, VLO, VZ, WFC, WPC, XEL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Tigertom73]

@FerdiS I always enjoy reading your articles. Take a look At $IRM and $MPW, both REITS. I own 1,000 shares of each. Bought both of them several years ago. They have a nice dividend. Regards, Tom

[Mentalist777]

Thank you Mr FerdiS for a great analysis. I started my stock market journey this year after I read your article here. Much appreciated your hard work ! If I can ask, can you please share how old are you? My dream is to gain fin. independence in 10 years and just wondering how young you were when you started your portfolio. Thank you so much !

[FerdiS]

@Mentalist777 -- thanks for your note and congratulations on starting your stock market journey! Be patient and work diligently at increasing your portfolio... you may find that it would take longer than 10 years, but that doesn't mean you shouldn't aim to reach financial independence in 10 years!

I don't think knowing my age will help you in any way. I started investing in the stock market in Dec 2002 and adopted the strategy of dividend growth investing in 2013.

[robertlgriffin]

@FerdiS :The Mentalist is actually asking a pertinent question. Your perspective as a hipster (Bitcoin, etc) will differ greatly from that of an old man (utilities, preferreds, etc). I'm in the latter category, but your investing philosophy will change over time, like everything else in life. I started investing in the early 1980s when I was in the early 30s, investing solely in growth issues, mostly with no dividends. As time marched on, my portfolio became one with zero pure growth names and a generous helping of utes, REITs and CEFs.

[cunhajose]

Dear Ferdi,
Just completed reading your article and noticed that I own 12 of the same stocks. Secondly, its clear that your portfolio comprises of only common stocks and I assume some cash. On the other hand my portfolio comprises of 50 common stocks, 20 preferreds,10 bonds, 2 mutual (Small Stocks & Emerging Mkts) funds and of course some cash. I did this in an attempt to both diversify and balance the portfolio. The question I would like to ask why construct the portfolio of only common stocks?
Keep in mind I already know you are a Div. Growth Investor.
Thanks,
JC

[FerdiS]

@cunhajose -- thanks for your note.

My wife and I own mutual funds in 403b and 401k accounts, respectively. Some of those funds invest in a mix of stocks and bonds. I don't manage those accounts actively nor do I consider them to be part of my DivGro portfolio.

I don't own preferreds, bonds, ETFs, or mutual funds in my DivGro portfolio. However, I do own 3 CEFs in DivGro, as disclosed at the end of my article.

I don't particularly like mutual funds due to the associated fees. I know too little about preferreds or bonds to invest in them confidently. Both have quirks that I find unattractive (bonds: debt holder, limited upside, lower yield; preferreds: low liquidity, multiple offerings to vet, convertibility/callability, etc.)

[buddyrow4]

👍

[FerdiS]

Cheers!

[freebird588]

Thanks, FeDis.:)

[FerdiS]

Welcome!

[Nate the Great]

FerdiS - always a favorite monthly read....keeping up with Ferdi! $CSCO and $PM are tough stocks to have assigned, but I assume you get used to it. I hate letting them go so much that I've only allowed one to get called away in four months! That was GM, and I was OK with it because of their lack of a dividend. But buying back others has eaten into my Covered Call gains pretty badly. I need to learn to be OK with letting things go...

[FerdiS]

@Nate the Great -- thanks, I appreciate the kind comment!

I certainly don't like being assigned. But, as the article points out, the equivalent options yield was much higher than the dividend yield. So not a terrible outcome at all. Now I can sell puts to going forward... I just need to ensure I get at least the equivalent of the dividends and wait for an assignment again...

[horowitzcpa]

@FerdiS perhaps the one author on SA who’s not hawking anything. Well done sir!

[FerdiS]

@horowitzcpa -- I appreciate your kind comment, thanks and happy investing!~

[buffalobobz]

always interesting n informative ty

[FerdiS]

Thanks! Appreciate the comment!

[waynor]

Keep up the good work!

[FerdiS]

Thanks, I'll try my best!

[jobugs]

Any one starting on the DivGro path, follow FerdiS and emulate his/her stock picks. That is all you need to do.

[FerdiS]

@jobugs -- thanks, I appreciate your kind endorsement! Though I'd advise individuals to borrow from me and from other DGI investors, figure out what works and what does not, and "individualize" an approach for themselves!

[jobugs]

@FerdiS
"figure out what works and what does not"

That takes a decade. Or three.

[FerdiS]

@jobugs -- well, perhaps, but if you borrow ideas and work them into your own strategy, I think that can be done in less time. I started with Dividend Growth Investing in 2013 -- although I'm still learning, really!

[Mercouger]

Very well written and informative article, Thank you.

[FerdiS]

You're welcome, I appreciate your kind words!